10 April 2013
09 March 2013
Sun Tzu's approach to the market as a battle field
Forex Market Hours provided by OANDA
A PRIVATE on the front line involved in direct
conflict
A FIRST LIEUTENANT directing his dollar
soldiers on the battlefield
A CAPTAIN who commands and controls
company-sized units (62 to 190 Soldiers)
A MAJOR
organising logistical and operational mission.
A MAJOR who is operating as a double agent with
elegance to the strongest side. ( your broker will hopefully have a share
elegance to both sides)
Depending upon your previous trading experience
and success or failure with determine where you place yourself within the
rankings.
The following quotation is without doubt very
suited to the trader’s ability to succeed through having a winner mind set as
he conquers all the negative tentacles that are consistently trying to
undermine sound and logical determinates. Once a decision to take action has
been made, having given due consideration of your trading rules then follow
through without delay as he who hesitates has lost. The tentacles of self doubt
are very quick to sap the courage and conviction from those who procrastinate.
“He who has thorough
knowledge of himself and the enemy is bound to win all battles. He who knows
himself but not the enemy has only an even chance of winning. He who knows not
himself and the enemy is bound to perish in all battles.
Know your enemy, know yourself and your victory
will not be threatened, know the terrain; know the weather and your victory
will be complete.”(Sun Tzu)
A very important twist needs to be taken into
account before I continue any further.
Your position within the context of the battle
and its various battle grounds must be seen from the perspective of a double agent;
I cannot stress enough the extreme importants of this statement for you as a
trader, keep it in mind at all times.
If you ever see the market as an enemy then
it’s time to change sides, if after having reviewed your rules and confirmation
has been found then change or exit your position.
A small drawdown on your account may be
acceptable as correct timely entry is sometimes illusive when your patient’s is
thin.
Sun Tzu’s philosophy on strategic thinking when
it comes to both war and business is extremely good, however in my opinion it
is better suited to currency trading.
Primarily because of the way he divides the
areas of confrontation into battlegrounds, which can be
superimposed onto a candlestick chart. Anyone who uses candlestick charting as
a backdrop to their analysis can with the knowledge obtained from this system
learn how to distinguish and divide their chart into the various risk level
associated with the matching battleground created by both buyer and seller.
Your road map across the battle fields to
complete victory.
Situation
Appraisal
Formulation of Goals
and Strategies
Evaluation of strategies
(battle ground )
Implementation
of Strategies
Situation Appraisal
Let’s say from the beginning that you need to make
money to provide for your family the extra comforts and holidays they deserve.
Currency trading is the vehicle you will be using to accomplish this very
important goal.
Your financial situation is very solid and you
have money in a self managed super fund that you will use for trading. Luckily
you have assets generating income for day to day living expenses so the
pressure on you to perform is not a big problem.
Of course the above is not always the situation;
however it is the most ideal financial position to be in when setting out to
trade for a living.
Health and state of mind are always an ongoing
problem that can also affect a trader’s performance over time and need to be
monitored on a regular basis.
With about 6 months part time trading under your
belt and a fair degree of success you set out on your journey to advance your
knowledge and convert it into dollars.
The first decision the trader must make is
where and when to enter the market, in order to do so the trader must draw up
some detailed plans before making a commitment to trade. This plan is your
entry plan and must have a number of exit options that don’t override your risk
profile. More often than not, a good trader will know from price action at the
entry point if he is correct or not once having placed his trade.
“With careful and detailed planning one can
win: with careless and less detailed planning one cannot win. However much more
certain is defeat if one does not plan at all!! From the way planning is done
beforehand, we can predict victory or defeat”( Sun Tzu)
Often when the market is running many
inexperienced trader cannot resist the temptation to jump in and make some fast
easy money and guess what, they do make some fast money but from then onward
they give it all back plus more. Not to mention the problem of setting up a bad
trading habit that may haunt them for months or years to follow. Hence detailed
planning must be under taken to give you a fair chance.
The prerequisites of planning
You must ensure that you have more than just
online trading access; I recommend you make sure you have at least 2 other ways
to close out or monitor your trade if something goes wrong.
As far as I am concerned trading is a journey
as you follow various markets and their movements over hours, day and weeks
hence you need a map that allows you to reach your destination with a
successful outcome. The map is basically the schedule that you follow from pre
opening until the end of your trading session.
The size of the trade should be of a meaningful
amount as this will help you to focus with more intensity, Hence if you losses money due to making an error in
judgement you will learn a valuable lesson, which is likely to stick in your
mind long term. A practice account does not have the critical elements needed
in order to trade live successfully, so
don’t fool yourself it’s only good for learning how to setup indicators and
establish the ground work to trading live without too many hiccups.
To make
real money you will need to lose real money. It is very rare that the opposite
applies. Brokers play a numbers game and promote practice accounts all over the
internet in order to attract would be traders.
Making money on a practice account is a very
false and misleading indicator it’s just a game, not a real business as is live
trading.
We are all by nature gamblers of one sort or
another, so it is important to have some rules in place that will protect you
from the irresistible urge to take a punt on a trade.” Of course at the time it
didn’t seem like a gamble at all but after the trade was placed I had some real
doubts”
This happens only too often and causes many
traders to lose their funds.
Being a day trader myself I have fallen into
this trap. My mind swings from one opinion to the other, it’s a buy and I can
see the confluence that backs my decision. Five minutes later the opposite
appears and I am now sure it’s a sell position I should take. On and on it goes
till without any further delays I place the trade only to realise that I have
just taken a gamble. Of course my stop lose gets hit shortly after I enter, I
am out of the market!! Then I watch the trade reverse and kick myself for not
waiting till the gamblers urge had subsided. Or as I do now take a 10 minute
break away from the computer to clear the clutter that has built up in my mind.
This rule now protects me from myself and any
gambling tendencies that have crept into my trading day.
“He who has thorough
knowledge of himself and the enemy is bound to win all battles. He who knows
himself but not the enemy has only an even chance of winning.
Now of course after any loosing trade an
analysis should be made from a technical point of view after having already
found the gamblers pitfall.
In this case I was in two minds about the
trade. The first move was up strongly the second move was down with the trend.
Hence a trap was set up to entice me to go against the trend which I did.
TO BE CONTINUED......
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